The Centre’s mammoth food security programme will not worsen the fiscal scenario in 2012-13 as much as some critics fear.
The Centre’s fiscal deficit figures for 2012-13, pegged at 5.1 per cent of the gross domestic product (GDP), may see only marginal pressure from the Food Security Bill, according to a working group of the Planning Commission. However, the food subsidy burden would rise about 68 per cent in the next financial year, compared to the Budget Estimates for this financial year due to the proposed Act.
A report by the group has rapped the finance ministry for insufficient funds for the Food Corporation of India (FCI) in the Budget. It has also criticised the move of releasing subsidy for the corporation’s operations evenly during the four quarters. It wanted the ministry to release 75 per cent subsidy in the first quarter, and the remaining in the other quarters, as the corporation purchases the bulk of foodgrains during the first two-three months of a financial year.
In its report, the group said if the Food Security Bill was implemented this financial year, the annual food subsidy burden would stand at Rs 1.12 lakh crore, against Budget Estimates of Rs 75,000 crore. However, the Bill, according to the food ministry, can at best be enacted in the last quarter of this financial year. In that case, the food subsidy could rise by about Rs 9,000 crore, owing to the proposed food law. This would marginally increase fiscal deficit from 5.1 per cent to 5.14 per cent of GDP.
The subsidy figures estimated by the working group are based on the assumption that the grain requirement for operationalising the Bill according to the draft prepared by the food ministry would be about 62 million tonnes, marginally more than the current annual allocation under the targeted public distribution system, estimated at an average of 55-60 million tonnes.
However, the real impact of food subsidy because of the proposed food Act would start hitting the exchequer from 2013-14, when food subsidy is expected to rise to about Rs 1.26 lakh crore, about 68 per cent higher than the Budget Estimates of food subsidy for 2012-13. If the Food Security Act comes in the last three months of this financial year, the subsidy burden in the next financial year would be 50 per cent higher.
By the end of the 12th five-year Plan, the foodgrain requirement under the Act would have to be about 66 million tonnes, which would raise the annual food subsidy in running the programme to Rs 1,81,229 crore, according to a report by working group.
The report blamed the finance ministry for making insufficient provisioning for food subsidy in the Budget, due to which the gap between subsidy incurred by FCI and the subsidy released is estimated to be over Rs 20,500 crore in 2011-12.
“The delayed release of food subsidy also adds to the interest cost, further burdening the country’s nodal food procurement and storage organisation,” said a senior Planning Commission official directly involved in preparing the report.
To stem this, the Planning Commission has suggested food subsidy for any new scheme or additional allocation of grains over and above the normal quantities should be immediately reimbursed to the FCI, rather than waiting for the end of the year. To keep the interest cost low, the commission has also advised the government to ensure almost 75 per cent of the budgeted food subsidy is released in the first quarter, rather than the current practice of releasing it in every quarter.
FCI had incurred interest cost of Rs 4,855 crore in 2010-11.
“FCI may be permitted to issue long-term bonds or raise public deposits at less than the prevailing interest rates. The equity portion of the corporation’s capital also needs to be raised, keeping in view the volume and size of operations needed to manage the Food Security Bill,” the report said.
